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VIEWS: 4 PAGES: 21

  • pg 1
									Annual Meeting of 1818 Society


       Pension Plan Performance



                                  October 22, 2008
 Pension Plan and Endowments


 Roadmap



1.   Highlights 2007
2.   Update 2008 and Recent Market Stress
3.   Determinants of Plan Long Term Performance
4.   Concluding Remarks




                                                  2
  SRP - Funded Status

   1.80

   1.60

   1.40
                                                                                                       126%
   1.20
                                                                                                       105%
   1.00

   0.80

   0.60
                                                                                                      101%
   0.40

   0.20

   0.00
          1998     1999      2000        2001        2002       2003       2004       2005   2005      2007
                                            Year ending December 31

             Closed Group Funded Ratio          Closed Group incl PV of participant conts    PBO Funded Ratio




Funded ratio is (MV of Assets)/(Liabilities)
                                                                                                                3
Total Bank Contribution Rates for
FY03 - FY09
40%

35%

30%

25%

20%

15%

10%

5%

0%
      2003     2004           2005          2006              2007            2008      2009

                                Financial Year ending June 30

             Staff Retirement Plan     Retiree Medical Plan          Other Bank Plans




                                                                                               4
   SRP Plan Performance (2007)



                                 Plan Return      Policy Return    Excess Return

    TOTAL PLAN                            10.3              8.3               2.1

    U.S. Equity                            5.5              5.1               0.4
    Non-U.S. Equity (Unhedged)            18.8             15.8               3.0
    Fixed Income                           4.6              5.3              (0.7)
    Hedge Funds                           10.4              3.6               6.8
    Private Equity                        28.6             16.3              12.2
    Real Estate                            8.0             10.0              (2.0)
    Currency Overlay                      (3.2)            (3.2)              0.0




Alternative investments continued playing a key role



                                                                                     5
  SRP - Change in Asset
  Allocation Policy, October 2007
                     Old Target                                                      New Target

                                                                  Emerging
                                                                 Market Equity
                        Non US Equity                                5%              Private Equity
                            16%                               Non-US                      15%
                                                              Equity                                      Real Estate
                                                               4.5%                                         12.5%       Timber
                                        Private Equity
                                                                                                                         2.5%
        US Equity                         Up to 12%
          19%                                              US Equity                                                     Infrastructure
                                             Real Estate     4.5%                                                             2.5%
                                              Up to 8%                                                                   Commodities
Cash                                                          Cash                                                            2.5%
Up to                                                          1%
                                          Hedge Funds
 1%                                                                                                   Hedge Funds
                                           Up to 12%
                                                                                                       Strategies
                                                                          Fixed Income for
                                                                                                          23%
                    Fixed Income                                              hedging
                        40%                                                     25%




                                                                                              Overlay
                                                                                             Strategies
                                                                                                 2%

                                   Equity Strategies                         Real Return Strategies
                                   Fixed Income Strategies                   Absolute Return Strategies                          6
 Pension Plan and Endowments


 Roadmap



1.   Highlights 2007
2.   Update 2008 and Recent Market Stress
3.   Determinants of Plan Long Term Performance
4.   Concluding Remarks




                                                  7
                         Pension Plan and Endowments


                         General Market Developments
                         Update on Recent Market Developments




                                                                Asset Class Returns YTD (as of October 16 2008)


                              Russell 3000                                                              -37.5%

                              MSCI World exUS                                                           -40.0%

                              MSCI EM Free                                                              -48.7%
Unprecedented market
conditions have led to        DJ AIG Commodity Index                                                    -25.7%
losses in most asset
classes                       EMBI                                                                      -16.1%

                              Lehman Global Aggregate exUS                                                0.9%

                              Lehman US Aggregate                                                        -1.4%

                              Lehman Brothers U.S. Tips Index                                            -3.1%




                                                                                                                  8
                          Pension Plan and Endowments


                          General Market Developments
                          Update on Recent Market Developments




Equity market
gyrations accelerated
in October.




Dow drops the most
ever in 1 day, and
subsequently stages
the biggest rally since
1930s, only to fall
back again




                                                                 9
                          Pension Plan and Endowments


                          Government interventions to stem the crisis
                          Update on Recent Market Developments
                             US
                            • Guarantee all senior debt issued by banks for next 3 years
Unprecedented               • Cut rates to 1.5% on Oct 8
government intervention     • Increase bank deposit to USD 250K from USD 100K. Non interest bearing accounts
across the world:           unlimited guarantee
                            • Will purchase troubled bank assets up to USD 700bn.
• Liquidity and lending     • Will use of up to USD250bn of the USD 700bn “bail-out package” to inject in banks.
guarantees                  Half in the 9 big banks; other half for smaller lenders and thrifts
• Interest rate cuts        • Temporarily banned short selling in financial companies. Ban lifted Oct 8.
                            EU
• Bank retail deposit       • Cut rates to 3.75% on Oct 8
guarantees                  • Guarantee deposits for up to EUR100K
• Bank recapitalization     UK
                            • Guarantee new short and medium-term debt issued by banks
• Asset purchase            • Cut rates to 4.5% on Oct 8
• Short selling bans        • Increase deposit guarantee to GBP50K
                            • RBS and Lloyds get GBP39bn capital injection. Another GBP25bn available for Tier 1
• Blanket deposit           capital to other banks.
guarantees                  • Short selling in financial stock until Jan 2009
                            Germany
                            • Provides EUR400bn in bank guarantees
                            • Blanket guarantee for all private bank accounts
                            • Provides EUR100bn in state funds to recapitalize banks
                            •Short selling in financial stock until Jan 2009
                            Australia
                            • Plans AUD8bn purchases of residential mortgage backed securities
                            • Blanket guarantee for entire deposit base
                                                                                                                   10
                     Pension Plan and Endowments


                     SRP Performance
                     Update on Recent Market Developments




                                     16,000
                                                                                       September 30, 2008
                                                                                        SRP Market Value:
                                     15,000                                                  $13.4b

                                     14,000

                                     13,000
                      ($ Millions)




SRP has lost value

                                     12,000

                                     11,000

                                     10,000

                                      9,000

                                      8,000
                                              Jan-01




                                                                Jan-03




                                                                         Jan-04




                                                                                  Jan-05




                                                                                              Jan-06




                                                                                                        Jan-07




                                                                                                                 Jan-08
                                                       Jan-02




                                                                                                                          11
                               Pension Plan and Endowments


                               SRP Performance
                               Update on Recent Market Developments



                                      A scenario analysis of returns and risk of different hypothetical asset allocations show:
  Diversification has
  helped cushion                      • The target SAA has highest risk adjusted returns in all scenarios
  losses                              • The actual return of SRP are below the target SAA returns but above all other scenarios
                                      • Actual SRP losses were less than for a “risk averse” 40% eq / 60% fixed income portfolio



                                           Total return comparison of different asset allocations

                                                               Rolling 1YR               Rolling 5YR               Rolling 10YR
Asset allocation                                         Return Volatility Ratio* Return Volatility Ratio*   Return Volatility Ratio*
60% Public Equity, 40% Fixed Income                       (13.5)      9.6    (1.4)   5.4        7.2    0.7      6.0       8.6     0.7
40% Public Equity, 60% Fixed Income                        (8.9)      6.4    (1.4)   4.7        4.9    1.0      5.9       5.9     1.0

"Target" SAA**                                              (6.4)    4.7     (1.3)    8.8      5.1     1.7     10.9      5.9      1.8

Actual***                                                   (8.3)    6.3     (1.3)    8.6      5.1     1.7         6.7   8.1      0.8

*: Ratio is calculated as Return / Volatility (IR)
**: "Target" SAA proxy: 25% Hedge Fund, 15% Public Equity, 25% Fixed Income, 20% Real Estate, 15% Private Equity
***: Actual based on Falsh report as of 10/14/08




                                                                                                                                        12
 Pension Plan and Endowments


 Roadmap



1.   Highlights 2007
2.   Update 2008 and Recent Market Stress
3.   Determinants of Plan Long Term Performance
4.   Concluding Remarks




                                                  13
                          Pension Plan and Endowments


                          Approaches to SRP Management
                          Cyclicality and Sources of Alpha

                                                                             SRP Annual Excess Return

                                                                                                                                                                                      I Pe
                                  5.0%
                                                                                                                                                                                      II P
                                  4.0%                                                                                                                                                III
                                  3.0%
                                  2.0%
Progressive improvement
                                  1.0%
in the amount and
consistency of Excess             0.0%

Return over time                 -1.0%
                                 -2.0%
                                 -3.0%
                                 -4.0%
                                 -5.0%
                                          1989

                                                 1990

                                                        1991

                                                               1992

                                                                      1993

                                                                              1994

                                                                                     1995

                                                                                            1996

                                                                                                   1997

                                                                                                          1998

                                                                                                                 1999

                                                                                                                        2000

                                                                                                                               2001

                                                                                                                                      2002

                                                                                                                                             2003

                                                                                                                                                    2004

                                                                                                                                                            2005

                                                                                                                                                                   2006

                                                                                                                                                                          2007
                                                                               1989-1995                         1996-2002                          2003-2007
Excess Return has
increased three-fold in                  Actual Return                               16.24%                             8.14%                          12.02%
the past 5 years
                                          Benchmark                                  15.85%                             7.30%                              9.63%
                                            Excess (+)                               0.38%                              0.85%                              2.38%



                                                                                                                                                                                 14
                       Pension Plan and Endowments


                       Approaches to SRP Management
                       Cyclicality and Sources of Alpha

                                                                                          SRP Quarterly Excess Return

                     3.00%


                     2.00%


                     1.00%
Gradual
improvement in
                     0.00%
managing
downside risk        -1.00%


                     -2.00%

                     -3.00%


                     -4.00%
                              IV 1989


                                        IV 1990


                                                  IV 1991


                                                            IV 1992


                                                                      IV 1993


                                                                                IV 1994


                                                                                             IV 1995


                                                                                                       IV 1996


                                                                                                                 IV 1997


                                                                                                                           IV 1998


                                                                                                                                     IV 1999


                                                                                                                                               IV 2000


                                                                                                                                                          IV 2001


                                                                                                                                                                    IV 2002


                                                                                                                                                                              IV 2003


                                                                                                                                                                                         IV 2004


                                                                                                                                                                                                   IV 2005


                                                                                                                                                                                                             IV 2006


                                                                                                                                                                                                                       IV 2007
Since 2002: major
effort to increase                                                                    # of neg.                     Cumulative                             Best                          Worst
portfolio                                                                             Quarters                      neg. Alpha                           Quarter                        Quarter
diversification         Period I: 1989-1995                                              15                          -11.01%                              2.27%                         -1.88%
and investment in       Period II: 1996-2002                                              8                           -6.31%                              1.38%                         -3.34%
alternatives            Period III: 2003-2007                                             1                           -0.18%                              1.75%                         -0.18%


                                                                                                                                                                                                                                 15
                          Pension Plan and Endowments

                          Diversification across Asset Classes Improves Excess
                          Returns
                                                                                                FX Overlay
                                                                                                Commodity
                          100.00%
                                                                                                Hedge Fund
                          90.00%
                                                                                                Real Estate
                          80.00%
Greater diversification
and low excess                                                                                  Private Equity
                          70.00%
returns correlation                                                                             Portable Alpha*
across asset classes      60.00%
are two main reasons                                                                            Public Equity
for improvement of        50.00%
excess returns
                          40.00%

                          30.00%
                                                                                                Fixed Income
                          20.00%

                          10.00%

                           0.00%
                                              1989                     1995       2002   2007

                                    * Portable Alpha proggram was discontinued
                                    after new SAA was approved in October 2007.

                                                                                                          16
                            Pension Plan and Endowments

                            Diversification within Asset Classes Improves Excess
                            Returns


                                            Number of active investments by asset class
 Greater diversification
 within each asset
 class across active
 managers has also
 positively contributed
 to reduce the overall                                                                           Hedge Fund
 volatility                  400                                                                 Real Estate

                             300
                                                                                                 Private Equity
                             200
                                                                                                 Public Equity
Impact is greatest in the    100
highest return producers:                                                                        Fixed Income
alternative asset classes
                              0
                              1996                          2002                          2007


                                                                                                               17
                         Pension Plan and Endowments


                         2008 Alpha generation: A Damage-Control Year
                         Cyclicality and Sources of Alpha

                        • Environment has made it difficult for active managers to add
                          Alpha
                                                       SRP ExcessReturn                 (data till June 2008)

                                                                                      Jan-June      1YR         2YR **
                                                                                        2008
                                                       SRP Total Invest. Port.        -0.27%       -0.34%       1.82%



                        • Plan has done better than market average in public equities and
                          roughly in line in fixed income
                                                               SRP Excess Return               (data till June 2008)


                                                                          Fixed Income                       Public Equity
                                                                Jan-June      1YR        2YR **     Jan-June     1YR          2YR **
                                                                  2008                                2008
                                    SRP Portfolio                -0.64%      -1.27%      -0.62%      1.58%       2.05%        2.38%

                                    Market Average *             -0.59%      -2.54%      -1.31%      0.81%       1.49%        1.09%

                                    Overperformance              -0.05%      1.27%       0.69%       0.77%       0.55%        1.29%


                        • Preliminary indicators confirm this trend for the quarter ending
                          September 30th. Data will not be available till mid-November

* Market average is composed of 197 different active managers in the Fixed Income space and 293 in the Public Equity space.
** per annum                                                                                                                           18
 Pension Plan and Endowments


 Roadmap



1.   Highlights 2007
2.   Update 2008 and Recent Market Stress
3.   Determinants of Plan Long Term Performance
4.   Concluding Remarks




                                                  19
Pension Plan and Endowments


Concluding Remarks


 •     An unprecedented market environment has prompted an
       unprecedented government response
 •     Short-term performance will continue to be volatile
 •     Plan’s increased diversification across asset classes and
       active managers has been a major determinant of
       performance and stronger risk management
 •     Diversification will continue to contribute to the downside
       protection of the Plan
 •     Crisis will be tough in the short term but will bring better
       risk/return metrics: better buying opportunities for the long
       term investor




                                                                       20

								
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